2007 (6) TMI 66 - HC - Income Tax

Deduction - Revenue contended that for the purpose of computing the total turnover for the purpose of deduction u/s 80HHC the excise duty required to be included - Held that revenue contention was not correct and set aside

Summary

Issues:
- Interpretation of section 80HHC of the Income-tax Act, 1961 regarding exclusion of excise duty from total turnover for computation of deduction.
- Applicability of the decision in Lakshmi Machine Works case to the assessment year 1992-93.

Analysis:
- The appeal was filed by the Income-tax Department against the orders passed by the Income-tax Appellate Tribunal for the assessment year 1992-93. The dispute arose from the exclusion of excise duty paid from the total turnover for the purpose of computing the deduction under section 80HHC of the Income-tax Act, 1961. The assessing authority had included the excise duty collected in the turnover, while the assessee argued that it should be excluded as it was treated as a liability in the accounts, not as income.

- The first appellate authority and the Tribunal had differing views on the matter. The Tribunal, in line with its earlier decision, held that excise duty should be excluded from the total turnover for the purpose of deduction under section 80HHC. The Revenue, however, contended that the Tribunal's decision was contrary to the provisions of Explanation (ba) to section 80HHC and cited previous court judgments to support its argument.

- The assessee relied on the decision of the apex court in the Lakshmi Machine Works case, which held that excise duty and sales tax should be excluded from the total turnover for the purpose of deduction under section 80HHC. The Revenue argued that the Lakshmi Machine Works decision applied only to the assessment year 1993-94, but the court found that the provisions for the two assessment years were identical, allowing the Lakshmi Machine Works decision to be applied to the assessment year 1992-93 as well.

- The court, after careful consideration of the provisions and the Lakshmi Machine Works decision, concluded that excise duty should be excluded from the total turnover for the purpose of deduction under section 80HHC. Citing the reasoning of the apex court, the court held in favor of the assessee, stating that excise duty and sales tax do not form part of the total turnover as they do not have a nexus with the activity of export, which is the focus of section 80HHC. The appeal was thus disposed of in favor of the assessee based on the precedent set by the Lakshmi Machine Works case.